New principles for fair student lending

A 64-year-old man from the Pacific Northwest, despite having paid down his student loan for nearly 20 years, will still be making monthly installments until his 84th birthday.

A woman from Illinois is locked into a 6 percent rate because she consolidated her loans and cannot negotiate further adjustments.

A recent unemployed graduate living in Minnesota still receives repeated collection calls despite having already arranged for payment deferments.

Still another Arizona borrower, who wanted to reduce the principal on his student loan by making an additional payment, was informed by the loan servicer that he had no control over how the excess payments would be applied.

These are some of the hundreds of stories that Consumers Union received earlier this year from overburdened borrowers. Together they illustrate the extent to which Americans of every age and background are grappling with student debt. While other forms of consumer debt have shrunk since the 2008 financial crisis, student debt continues to grow, and threatens to have long-term economic effects as the indebted delay making other investments, such as in new cars or homes, in order to afford to pay off their loans.

Download the complete "Degrees of Debt: Stories from Student Loan Borrowers Highlight Urgent Need for Reform" report (PDF). And get educated about student loans.

Although there have been some marginal reform over the last few years, they have been inadequate to alleviate the nearly $1 trillion of student loan debt consumers are servicing, and increasingly, failing to service—according to recent data from the Department of Education, 1 of 7 borrowers have defaulted on student loan payments within the first three years of repayment.

So today, Consumers Union has released a new report, "Degrees of Debt: Stories from Student Loan Borrowers Highlight Urgent Need for Reform" (PDF) featuring consumer stories that illustrate the major problems in need of reform. The report also proposes a comprehensive policy agenda for restoring fairness to the student loan system. These "Seven Principles for Fair Student Lending" include: Transparency: Schools should provide plain-language documentation for prospective students to understand the mix of grants, scholarships, and loans available to them.Options: Schools need to provide students with all the financing options for which they might be eligible.Flexibility: Lenders should be required to offer flexibility for borrowers to repay loans, no matter if they're public or private loans. Reasonableness: In fees and how payments are applied to the loan.Accountabilty: Borrowers should have inquiries and disputes resolved in a timely fashion.Fairness: Deceptions throughout the educational process, from schools to lenders to loan servicers, must be prohibited by law, and regulated when necessary.Relief: Borrowers shouldn't be saddled with lifelong educational debts that can't be effectively rehabilitated or discharged in extraordinary circumstances.

Addressing student loans is only one problem facing higher education today. Increases in college costs outpace virtually all other goods and services in the economy, and the college admissions process alone seemingly requires its own coursework. But by not effectively taking on the student loan problem, we as a nation run the risk of not only hobbling millions of student loan borrowers, but also the greater economy.